secunet Security Networks AG

Quarterly Report • Nov 7, 2012

9-Month Report 2012

Q3

• Strong revenue growth of 26% over previous year

• • Good 3rd quarter result ensures significant EBIT improvement
• • Order book at record high of Euro 50.9m
• • Outlook for 2012 financial year unchanged: revenue of Euro 60m, EBIT of Euro 5m

OVERVIEW OF THE KEY FIGURES FOR THE FIRST NINE MONTHS

	9M 2012	9M 2011	Change
Revenue (kEuro)	41,391	32,846	+26%
EBIT (kEuro)	692	-756	-/-
EBT (kEuro)	779	-678	-/-
Profit/loss for the period (kEuro)	371	-383	-/-
Earnings per share for the period (Euro)	0.06	-0.06	-/-
Cash flow from operating activities (kEuro)	-6,344	-1,011	-/-
Capital expenditure (kEuro)	792	734	+8%
Order book (mEuro)	50.9	33.3	+53%
Employees (as at 30 Sep)	298	279	+7%

	30 Sep 2012	31 Dec 2011	Change
Cash and cash equivalents (kEuro)	10,591	17,636	-40%
Equity (kEuro)	28,081	27,705	+1%
Equity ratio (in percent)	65	60	+5 percentage points
Loans (kEuro)	0.0	0.0	-/-

OVERVIEW OF THE KEY FIGURES FOR THE THIRD QUARTER

	Q3 2012	Q3 2011	Change
Revenue (kEuro)	16,084	11,107	+45%
EBIT (kEuro)	1,457	91	>+100%
EBT (kEuro)	1,464	146	>+100%
Profit/loss for the period (kEuro)	714	239	>+100%
Earnings per share for the period (Euro)	0.11	0.04	>+100%

THE SECUNET SHARE

Reuters	YSNG.DE
Bloomberg	YSN
WKN	727650
ISIN	DE0007276503

	30 Sep 2012	30 Sep 2011
Price (Euro)	10.05	10.80
Number of shares	6,500,000	6,500,000
Market capitalisation (Euro)	65,325,000	70,200,000
52W high/low (Euro)	H: 11.90/T: 9.45	H: 12.99/T: 8.50

	9M 2012	9M 2011
Average daily trading volume	1,400	1,778

INTERIM GROUP MANAGEMENT REPORT FOR THE FIRST 9 MONTHS OF 2012

REVENUE PERFORMANCE

In the first nine months of 2012, the secunet Group generated revenue of Euro 41.4m. This represents a 26% increase over the same period in the previous year (Euro 32.8m).

In the 3rd quarter of 2012, the Group's revenue amounted to Euro 16.1m, equating to a 45% increase over the same quarter in the previous year.

EARNINGS PERFORMANCE

Compared to the previous year, the earnings situation of the secunet Group significantly improved in the third quarter of 2012. Earnings before interest and taxes (EBIT) for the period from January to September 2012 amounted to Euro 0.7m, compared to Euro -0.8m in the previous year.

An EBIT of kEuro 91 in the third quarter of 2011 has increased to kEuro 1,457 in the same period of the current year.

The development of the individual cost items as influencing factors is as follows:

The cost of sales (9M-2011: Euro 27.6m, 9M-2012: Euro 34.2m) represents the main cost factor amounting to 80% of Group revenue. With an increase of 24% between 2011 and 2012, the cost of sales grew at a slightly slower pace than Group revenue. The cost of sales is primarily made up of personnel costs (productive areas of development and consulting) and material costs (for hardware deliveries). The increased cost of sales is greatly influenced by expenditure for purchased services: The high level of capacity utilisation necessitated the procurement of third-party services. Higher unplanned additional project expenses of Euro 1.0m also pushed up the cost of sales.

Selling expenses rose 10% in the first nine months, from Euro 3.8m to Euro 4.2m. This increase is primarily driven by the rise in personnel costs, not least as a result of the Group's personnel growth.

In the period from January to September 2012, general administrative costs amounted to Euro 2.3m, representing a 3% increase from the previous year's value of Euro 2.2m.

The financial result rose from kEuro 78 in the first nine months of 2011 to kEuro 87 in the same period of the current year. In the previous year, the formation of deferred tax assets resulting from the negative result caused a positive effect of Euro 0.3m on the taxes. However, in the period from January to September 2012, a fiscal burden totalling Euro 0.4m arose due to the creation of deferred tax liabilities. The result for the period rose from Euro -0.4m in the previous year to Euro +0.4m in the first nine months of 2012. Earnings per share increased accordingly from Euro -0.06 to Euro +0.06.

SEGMENT REPORTING

The organisation of secunet Security Networks AG is based on the target groups served by the individual divisions:

The "Public Sector" business division primarily supplies public sector consumers at home and abroad. With earnings of Euro 31.1m in the first nine months of 2012 (previous year: Euro 26.7m) this division accounted for 76% of the Group's total revenue, of which 44 percentage points or Euro 18.0m are attributable to the High Security business unit (SINA product family). The resulting 29% increase in revenue from the previous year's value of Euro 14.0m exceeds the Group average. Based on the significant impact of the cost of sales – the additional project expenses mentioned above mainly affected this business unit – and due to high distribution costs, the High Security business unit made a negative contribution of Euro -2.0m to the Group's EBIT (previous year: Euro -2.6m).

The Government business unit, which advises authorities in matters of IT security, earned Euro 13.1m in the first nine months of 2012, thus accounting for 32% of the secunet Group's revenue. Compared to the previous year (Euro 12.7m), revenue in this business unit has increased by 3% in the first nine months. The Government business unit made a positive contribution to the Group's EBIT with Euro 2.0m (previous year: Euro 1.5m).

The "Private Sector" division, which supplies business customers with IT security solutions, accounts for 24% of the secunet Group revenue.

The Business Security business unit, which provides companies with a wide range of IT security services and products, accounts for 20% of Group turnover (Euro 8.4m), thus representing the largest share in the "Private Sector" division. In the period from January to September 2012, revenue in this business unit rose by 91% or Euro 4.0m over the previous year. This extremely strong growth is attributable a number of major projects, which ensure very good utilisation of the Business Security business unit. The majority of these major projects are commissioned by Giesecke & Devrient. This business unit also made a positive contribution to the Group's EBIT in the amount of Euro 1.3m (previous year: Euro 0.1m).

The Automotive Security business unit, which is also part of the "Private Sector" business division and reported under "other segments", contributed 4% to Group revenue. The contribution to the Group EBIT is negative, in the amount of Euro -0.6m (previous year: Euro -0.8m).

ORDER BOOK

On 30 September 2012, the order book of secunet Security Networks AG reached a historical record high of Euro 50.9m, a fact that can mainly be attributed to large orders. The major orders are distributed across the business units relative to their contribution to Group revenue. The very high order book will continue to ensure high capacity utilisation and corresponding revenue growth.

FINANCIAL POSITION and Net ASSETS

The balance sheet of secunet Security Networks AG revealed the following changes compared with the figures as at 31 December 2011:

• • The level of cash and cash equivalents has fallen by Euro 7.0m.
• • Due to the excellent revenue situation, trade receivables rose by Euro 1.9m
• • Inventories rose by Euro 1.6m for the same reason.
• • Income tax receivables rose by Euro 1.3m due to tax prepayments.
• • Liabilities are down Euro 3m.
• • Deferred tax liabilities rose by Euro 0.4m, which is attributable to the difference between the IFRS and HGB results based on the application of the POC method.

secunet has not taken out any loans and therefore has a debt/equity ratio of 0%.

CASH FLOW

In the first nine months of 2012, cash outflow from operating activities totalled Euro -6.3m, compared to Euro -1.0m in the same period of 2011. This Euro 5.3m increase in negative cash flow is largely attributable to the following factors:

• • In the period from January to September 2012, receivables totalling Euro 2.8m were accrued, compared to Euro 7.2m in the same period of the previous year (difference: Euro -10.0m). The high figure for receivables was caused by the long accounting periods for major projects.
• • This effect was not only compensated by the higher operating result (Euro 0.8m compared to Euro -0.7m in 2011 difference: Euro +1.5m),
• • but also by lower payouts for the reduction of liabilities (9M-2011: Euro 5.0m, 9M-2012: Euro 3.8m difference: Euro +1.2m).
• • Allocations to provisions in the first nine months of 2012 (Euro 0.3m) following the reduction of provisions in the same period of 2011 (Euro 1.6m) also had a positive cash flow effect (difference: Euro +1.9m).

INVESTMENTS

Capital expenditure of secunet Security Networks AG is focused on the procurement and replacement of hardware, software and other business equipment. After kEuro 734 in the first nine months of 2011, investments in the same period of 2012 remained relatively stable at kEuro 792.

EMPLOYEES

As at 30 September 2012, the number of secunet Group employees was 298, representing an increase of 19 employees or 7% over the previous year. New personnel were primarily hired in the productive areas of consulting and development, as well as sales.

OPPORTUNITIES AND RISKS

Since the end of the 2011 financial year there has been no change in the principal opportunities and risks as described in the Annual Report for 2011.

OUTLOOK

Based on current business performance and estimates for the remaining months of 2012, the Management Board is maintaining its forecast for this year: Group revenue of approximately Euro 60m and EBIT of approximately Euro 5m are anticipated.

This 9-Month Report contains statements regarding the future performance of secunet Security Networks AG and economic and political developments. These statements are opinions that we have formed based on the information currently available to us. Should the assumptions on which these statements are based not be applicable or should further risks arise, the actual results may deviate from the results currently expected. We cannot therefore offer any guarantee as to the accuracy of these statements.

Essen, 6 November 2012

Dr. Rainer Baumgart Willem Bulthuis Thomas Pleines

CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE FIRST 9 MONTHS OF 2012

CONSOLIDATED BALANCE SHEET OF SECUNET SECURITY NETWORKS AG (IFRS) AS AT 30 SEPTEMBER 2012

Assets in Euro	30 Sep 2012	31 Dec 2011
Current assets
Cash and cash equivalents	10,591,180.19	17,636,344.27
Trade receivables	20,686,990.20	18,756,758.11
Intercompany receivables	181,618.72	840,216.64
Inventories	3,697,646.63	2,135,770.05
Other current assets	247,115.28	242,813.08
Current tax assets	1,569,962.33	305,988.00
Total current assets	36,974,513.35	39,917,890.15
Non-current assets
Property, plant and equipment	1,586,880.00	1,611,952.00
Intangible assets	106,672.00	167,412.00
Goodwill	2,950,000.00	2,950,000.00
Non-current financial instruments	1,358,473.44	1,279,719.00
Deferred taxes	394,900.00	308,218.16
Total non-current assets	6,396,925.44	6,317,301.16

Total assets	43,371,438.79	46,235,191.31

Liabilities
in Euro	30 Sep 2012	31 Dec 2011
Current liabilities
Trade payables	3,823,905.75	6,818,482.33
Intercompany payables	22,856.00	0.00
Other provisions	5,347,183.71	5,255,138.72
Current tax liabilities	117,662.65	210,667.59
Other current liabilities	1,540,034.05	2,860,017.92
Prepaid expenses and deferred income	1,362,172.88	912,444.88
Total current liabilities	12,213,815.04	16,056,751.44
Non-current liabilities
Deferred taxes	697,771.57	276,538.24
Provisions for pensions	2,279,377.00	2,097,460.00
Other provisions	98,999.00	98,999.00
Total non-current liabilities	3,076,147.57	2,472,997.24
Equity
Subscribed capital	6,500,000.00	6,500,000.00
Capital reserves	21,922,005.80	21,922,005.80
Treasury shares	-103,739.83	-103,739.83
Group loss carryforward	-604,710.30	-3,309,090.15
Group profit/loss	371,290.35	2,704,379.85
Accumulated other comprehensive income/loss	-3,369.84	-8,113.04
Total equity	28,081,476.18	27,705,442.63

Total liabilities	43,371,438.79	46,235,191.31
-------------------	---------------	---------------

CONSOLIDATED INCOME STATEMENT OF SECUNET SECURITY NETWORKS AG (IFRS) FOR THE PERIOD FROM 1 JANUARY 2012 TO 30 SEPTEMBER 2012

in Euro	01 July – 30 Sep 2012	01 July – 30 Sep 2011	01 Jan – 30 Sep 2012	01 Jan – 30 Sep 2011
Revenue	16,084,253.58	11,107,039.76	41,390,908.52	32,845,937.52
Cost of sales	-12,761,965.12	-9,362,651.85	-34,214,899.94	-27,563,387.64
Gross profit on sales	3,322,288.46	1,744,387.91	7,176,008.58	5,282,549.88
Selling expenses	-1,296,482.32	-1,039,680.29	-4,171,611.44	-3,799,736.55
General administration costs	-569,172.97	-611,947.14	-2,312,473.26	-2,236,399.70
Other operating expenses	0.00	-1,551.25	0.00	-2,558.25
Earnings from operating activities	1,456,633.17	91,209.23	691,923.88	-756,144.62
Earnings before interest and income tax	1,456,633.17	91,209.23	691,923.88	-756,144.62
Interest income	8,297.92	34,713.62	88,892.72	80,909.46
Interest expense	-615.53	-515.23	-2,187.29	-2,823.25
Foreign currency gains /losses	0.00	21,288.03	0.00	196.73
Earnings before tax	1,464,315.56	146,695.65	778,629.31	-677,861.68
Income taxes	-750,417.27	92,518.08	-407,338.96	294,535.63
Group profit/loss for the period	713,898.29	239,213.73	371,290.35	-383,326.05
Earnings per share (diluted and undiluted)	0.11	0.04	0.06	-0.06
Average number of shares outstanding (diluted, undiluted, units)	6,459,502	6,459,502	6,459,502	6,459,502

consolidated STATEMENT OF COMPREHENSIVE INCOME OF SECUNET SECURITY NETWORKS AG (IFRS) FOR THE PERIOD FROM 1 JANUARY 2012 TO 30 SEPTEMBER 2012

in Euro	01 July – 30 Sep 2012	01 July – 30 Sep 2011	01 Jan – 30 Sep 2012	01 Jan – 30 Sep 2011
Group profit/loss for the period	713,898.29	239,213.73	371,290.35	-383,326.05
Currency conversion differences (change not recognised in profit and loss)	2,818.06	-16,086.04	4,743.20	-1,871.34
Comprehensive income/loss	716,716.35	223,127.69	376,033.55	-385,197.39

Consolidated CASH FLOW STATEMENT OF SECUNET SECURITY NETWORKS AG FOR THE PERIOD FROM 1 JANUARY 2012 TO 30 SEPTEMBER 2012

in Euro	01 Jan – 30 Sep 2012	01 Jan – 30 Sep 2011
Cash flow from operating activities
Earnings before tax (EBT)	778,629.31	-677,861.68
Depreciation and amortisation	798,922.75	740,779.93
Change in provisions	273,961.99	-1,613,145.44
Book gains /losses (net) on the sale of intangible assets and of property, plant and equipment	0.00	2,558.25
Interest result	-86,705.43	-78,086.21
Change in receivables and other assets	-2,837,812.95	7,205,907.49
Change in payables and deferred income	-3,841,513.19	-4,994,165.02
Tax paid	-1,429,766.74	-1,597,514.92
Net cash generated from operating activities	-6,344,284.26	-1,011,527.60
Cash flow from investing activities
Purchase of intangible assets and of property, plant and equipment	-713,110.75	-655,583.23
Purchase of financial assets	-78,754.44	-78,754.47
Net cash generated from investment activities	-791,865.19	-734,337.70
Cash flow from financing activities
Interest received	88,892.72	77,203.17
Interest paid	-2,187.29	-2,823.25
Cash generated from financing activities	86,705.43	74,379.92
Effects of exchange rate changes on cash and cash equivalents	4,279.94	8,123.54
Changes in cash and cash equivalents	-7,045,164.08	-1,663,361.84
Cash and cash equivalents at the beginning of the period	17,636,344.27	14,344,166.94
Cash and cash equivalents at the end of the period	10,591,180.19	12,680,805.10

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY OF SECUNET SECURITY NETWORKS AG (IFRS) FOR THE PERIOD FROM 1 JANUARY 2011 TO 30 SEPTEMBER 2012

in Euro	Share capital	Capital reserves	Treasury shares	Net accumulated losses	Accumulated other compre hensive income/loss	Total
Equity at 31 Dec 2010	6,500,000.00	21,922,005.80	-103,739.83	-3,309,090.15	6,137.45	25,015,313.27
Comprehensive income/loss 01 Jan – 30 Sep 2011				-383,326.05	-1,871.34	-385,197.39
Equity at 30 Sep 2011	6,500,000.00	21,922,005.80	-103,739.83	-3,692,416.20	4,266.11	24,630,115.88
Comprehensive income/loss 01 Oct – 31 Dec 2011				3,087,705.90	-12,379.15	3,075,326.75
Equity at 31 Dec 2011	6,500,000.00	21,922,005.80	-103,739.83	-604,710.30	-8,113.04	27,705,442.63
Comprehensive income/loss 01 Jan – 30 Sep 2012				371,290.35	4,743.20	376,033.55
Equity at 30 Sep 2012	6,500,000.00	21,922,005.80	-103,739.83	-233,419.95	-3,369.84	28,081,476.18

EXPLANATORY REPORT

secunet Security Networks' 9-Month Report for the period ending 30 September 2012 was compiled in accordance with the International Accounting Standard (IAS) 34 "Interim Financial Reporting". This 9-Month Report is condensed. It is to be read in conjunction with the IFRS consolidated financial statements dated 31 December 2011 (Consolidated Financial Statements). This 9-Month Report was approved by the Management Board of secunet Security Networks AG on 6 November 2012.

ACCOUNTING PRINCIPLES

The consolidation principles and currency translation method for the period from 1 January to 30 September 2012 were in accordance with those in the Company's consolidated financial statements for the 2011 financial year. The accounting and valuation methods were retained. The consolidated financial statements of secunet Security Networks AG as at 31 December 2011 were produced on the basis of Articles 315 and 315a of the German Commercial Code (HGB) and in accordance with the International Financial Reporting Standards (IFRS) as they are to be applied in the European Union.

The figures shown in the consolidated balance sheet, consolidated income statement, consolidated statement of comprehensive income, consolidated cash flow statement and consolidated statement of changes in equity correspond to the normal course of business at secunet and do not include any extraordinary items.

A tax rate of 32.28% applies to the calculation of income taxes for national companies. Calculation of tax payable on income for foreign companies is based on the relevant rates of tax for those countries.

The preparation of the 9-Month Report requires a series of assumptions and estimates on the part of the management. As a result, it is possible that the figures reported in the interim report deviate from the actual figures.

CONSOLIDATED GROUP

In addition to secunet Security Networks, all subsidiaries whose financial and operating policies secunet has the power to govern are included in the consolidated financial statements. In the reporting period and in the 2011 financial year, there were no minority interests in equity or in the profit or loss for the respective period.

Compared with 31 December 2011, the consolidated group was unchanged as at 30 September 2012. The two consolidated subsidiaries secunet s.r.o., Prague, Czech Republic, and secunet SwissIT AG, Solothurn, Switzerland, are in liquidation.

TREASURY SHARES

As at 30 September 2012 the Company held 30,498 treasury shares, the same figure as at 31 December 2011; this equates to 0.5% of its share capital.

SEGMENT REPORTING

The secunet Group is divided into the Public Sector business division, made up of the High Security and Government business units, and the Private Sector division, made up of the Business Security and Automotive Security business units. The High Security, Government and Business Security business units are shown separately for the purposes of segment reporting, as they meet at least one of the quantitative thresholds defined in IFRS 8.13. The Automotive Security business unit does not meet any of the quantitative thresholds laid down in IFRS 8.13.

The High Security business unit addresses the highly complex security requirements of authorities, the military and international organisations. At the core of its offering is the Secure Inter-Network Architecture, SINA, developed in conjunction with the German Federal Office for Information Security (Bundesamt für Sicherheit in der Informationstechnik, BSI).

The Government business unit supports authorities in Germany and abroad in all areas relating to e-Government solutions and IT security. These include biometric solutions and sovereign documents, health services (e-health), security validation and secure web solutions. This business unit operates a BSI-certified evaluation laboratory for IT conformity.

The staff of the Business Security business unit focus on security issues affecting industrial companies. Its product line includes identity management systems, qualified mass signature solutions for electronic invoicing, public key infrastructures and network security. In all areas, analyses, consulting and complete solutions are tailored to each customer's specific requirements.

The Automotive Security business unit deals with the IT security issues facing automotive manufacturers. With more and more vehicle functions now being computerised, it is becoming increasingly important for both automotive manufacturers and suppliers to ensure that built-in hardware and software components are protected against unauthorised changes.

Segment report Q3 2012 in kEuro	Business Security	Government	High Security	Other Segments	Reconciliation	secunet Q3 2012
Segment revenue	8,425	13,082	18,037	1,847	0	41,391
Cost of sales	-5,510	-9,646	-17,052	-2,007	0	-34,215
Selling expenses	-1,004	-748	-2,100	-319	0	-4,172
Administrative costs	-562	-681	-908	-162	0	-2,312
Segment result (EBIT)	1,348	2,007	-2,023	-640	0	692
Interest result						87
Foreign currency gains /losses						0
Group profit before tax						779
Goodwill	838	773	1,339	0	0	2,950

Segment report

Security	Government	High Security	Other Segments	Reconciliation	secunet Q3 2011
4,406	12,700	13,988	1,067	685	32,846
-2,853	-9,695	-13,987	-1,346	316	-27,565
-899	-785	-1,779	-337	0	-3,800
-541	-675	-834	-188	0	-2,238
113	1,545	-2,611	-804	1,001	-756
					78
					0
					-678
838	773	1,339	0	0	2,950
	Business

At the end of the 2011 financial year, changes were made to how revenue in the business units is reported. Up until 2010, external revenue in which multiple business units were involved was divided up. From the 2011 Annual Financial Statements onwards, revenue will remain within the invoicing segment. The costs arising in other business units will be offset as a credit entry within the cost of sales.

	Business		High	Other
in kEuro	Security	Government	Security	Segments	Reconciliation	secunet
Segment revenue	4,406	12,700	13,988	1,067	685	32,846
Segment-internal allocations	1,059	-771	-255	-33	0	0
Segment revenue as stated the previous year	5,465	11,929	13,733	1,034	685	32,846
Cost of sales	-2,853	-9,695	-13,987	-1,346	316	-27,565
Segment-internal allocations	-1,059	771	255	33	0	0
Cost of sales as stated the previous year	-3,912	-8,924	-13,732	-1,313	316	-27,565

In order to enable comparison with the previous year's figures, the following overview contains a reconciliation of the segment revenue and the cost of sales for the current table with the previous year's table:

The transfer prices are essentially in line with the prices for third-party transactions.

The reconciliation primarily involves the elimination of intra-group assets, liabilities, expenses and income. The accounting principles for the segments are identical to those used for the Consolidated Financial Statements. Using apportionments, expenses (e.g. overhead costs) that are not directly allocable to the reportable segments are allocated to the reportable segments. The segments are managed on the basis of the segment result.

With the exception of non-essential components, the segments' assets are focused on the domestic market. There were no significant changes to the segment assets as at the reporting date.

RELATED PARTY DISCLOSURES

The consolidated companies within the secunet Group have an association with their main shareholder, Giesecke & Devrient GmbH, Munich, in the course of their normal business activities. All transactions are conducted in accordance with normal market practice.

In the first nine months of 2012, no Management Board members were promised or granted any benefits by a third party in respect of their activity as members of the Management Board. In the first nine months of 2012, the members of the Supervisory Board did not receive any other remuneration (over and above the Supervisory Board remuneration as regulated in the Articles of Association of secunet Security Networks) or benefits for services provided personally, in particular consulting and agency services. Neither the members of the Management Board nor the members of the Supervisory Board received any loans from the Company.

EVENTS AFTER THE END OF THE INTERIM PERIOD

There were no significant events after the reporting date.

FINANCIAL CALENDAR

2013
23 January	Publication of the preliminary figures for the 2012 financial year
19 March	Annual Report 2012
20 March	Analyst Conference
8 May	3-Month Report 2013
15 May	Annual General Meeting
7 August	Half-Year Financial Report 2013
6 November	9-Month Report 2013

IT security beyond expectations

Imprint

Issued by secunet Security Networks AG Kronprinzenstraße 30 45128 Essen/Germany

Contact

Investor Relations secunet Security Networks AG Kronprinzenstraße 30 45128 Essen/Germany

Phone: +49 201 5454-1227 Fax: +49 201 5454-1228

Email: investor.relations@secunet.com Internet: www.secunet.com

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This Half-Year Financial Report is also available in German. In the event of conflicts the German-languageversion shall prevail.